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Progressive Taxation in a Tournament Economy

Author

Listed:
  • Carpenter, Jeffrey P.

    () (Middlebury College)

  • Matthews, Peter Hans

    () (Middlebury College)

  • Tabb, Benjamin

    (Middlebury College)

Abstract

Not enough is known about the responsiveness of individuals, in particular those who tend to work under different incentives, to changes in marginal tax rates. We ask whether changes in marginal tax rates are less distortionary for workers engaged in a contest. To examine this potential rationale for a more progressive tax code, we first model the effort decisions of workers faced with progressive taxation under tournaments and piece rates. Because of the difficulty identifying any distortion that may be induced by the tax code in naturally occurring data, we then report on the results of a real-effort experiment based on this model. Consistent with a behavioral approach to public finance, we find that tournament workers are less sensitive, and conclude with a tentative evaluation of the welfare benefits of progressive taxation in tournament economies.

Suggested Citation

  • Carpenter, Jeffrey P. & Matthews, Peter Hans & Tabb, Benjamin, 2014. "Progressive Taxation in a Tournament Economy," IZA Discussion Papers 8369, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp8369
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    More about this item

    Keywords

    taxation; tournaments; public good; real effort experiment;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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